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How much life insurance do you need?

By David Drillien
Executive Manager, Life Products

14 June 2018

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If you’ve made the decision to buy or change your life insurance, one of the first questions you’ll have is how much cover you need.

Unfortunately, there’s no right answer.

Your life cover requirements will vary depending on a number of factors, and will also change over time. 

It can be confronting to have frank discussions about what will happen if you or a loved one dies or can’t work, but having a good understanding of your own situation will help you feel more confident. 

It can also help you to have a deeper conversation with your financial adviser, so they’ll be better able to help you design a package of insurance cover that meets your needs. 

So here are a few things to think about before you talk to an adviser:

1. Where will you live?

If you (or a partner or spouse) can’t work or pass away, what will happen to your family home? Could you still pay rent, or meet your mortgage payments? 

Many people will use their mortgage debt as a starting point for their life insurance cover, by setting a sum insured that will at least pay off the entire mortgage if they pass away. That way they’ll know that whatever else happens, their family will have a place to live.

2. How will you pay off debt?

A mortgage on the family home is not always the only debt a family has. Have a think about what would happen to your debt if you had to do without one (or more) incomes over one, two, five or 20 years. 

Would you still be able to meet your repayments? Or would your assets be worth enough that you could sell them to clear your debt if needed?

3. How much would you be able to work, and could you re-train?

This is a much trickier question to answer, because it will depend on so many things. But if you got sick or injured, how difficult would it be to keep working?

More physical jobs can often be more challenging, so have a think about whether you could still do some or all of your job if you were physically impaired somehow, or whether you would be able to re-train.

4. Who needs to be covered?

Perhaps your family has one bread-winner, and one stay at home parent. You may have thought about insuring the working family member, but what if the family caretaker was ill or injured?

The cost of covering non-paid family labour like childcare, housework and maintenance and chores like grocery shopping could be significant, or they might take a toll on the other person’s ability to earn an income. So it’s a good idea to think about whether you should insure any non-working family members.

5. How much cover can you afford?

It’s easy to talk about all your insurance options and come up with a gold-plated package of cover. But life insurance can be expensive and it needs to suit your budget as well as your risks.

An adviser will be able to help you adjust your cover to suit your budget, so talk to them about how much you think you can afford.

They might be able to help find ways to keep your cover affordable without reducing it, like increasing wait times or choosing different policies.

If you want to talk to someone about how much life insurance you need, a financial adviser can help. If you don’t have an adviser, we can help you find one.

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